UK factory output has fallen sharply to its lowest level in nearly three years, indicating that Bank of England interest rate increases are slowing the economy, according to the latest manufacturing snapshot from the CBI.
UK PMI data suggests a 0.2% decline in GDP in Q3, indicating a potential recession as factory output slumps and the economy faces higher interest rates.
Germany's business activity has seen a sharp decline, leading to concerns of a recession, as the country's Purchasing Managers' Index (PMI) dipped to its lowest level in over three years. This decline in activity is impacting the wider eurozone economy as well, with the region at risk of slipping into recession. This economic downturn is accompanied by a worrying uptick in inflation and slow growth, particularly in Germany.
The UK and eurozone economies are at risk of recession due to a significant slowdown in private sector activity, with the UK experiencing its poorest performance since the Covid lockdown and Germany being hit particularly hard; the US is also showing signs of strain, with activity slowing to near-stagnation levels.
The Eurozone and UK services PMI data led to a drop in the euro and pound, while weakness was observed in Canadian consumers and China, suggesting a darkening global growth picture as interest rates rise, with the US being the main source of growth but showing signs of slowing in mortgage applications and student debt repayments.
Britain's experience with quantitative easing (QE) and monetary policy has had both positive and negative impacts, with the unnecessary prolonged period of cheap money causing damage, the kamikaze printing of money during the pandemic feeding inflation and leaving taxpayers with a large bill, but also some good news as inflation is expected to decelerate and boost spending power as real incomes rise, although second-round effects could ensure inflation's persistence. The UK economy is weak and policy should focus on averting recession and challenging consensus-thinking on future growth, as the country's composite Purchasing Managers Index (PMI) has fallen to a 31-month low, with the services sector slipping into recession and a slump in retail sales in August. Higher interest rates are causing corporate distress, suggesting the need to stop raising rates, while elevated policy rates and selling of gilts by the Bank of England will keep upward pressure on long-term yields and borrowing and mortgage rates. The expectation of positive real interest rates signals the end of cheap money and offers an opportunity in Britain to rethink fiscal and supply-side policy, encouraging investment, innovation, competitiveness, and improved skills. Overall, the outlook is characterized by falling inflation, weak growth, and the opportunity to reset monetary policy and focus on fiscal policy, the supply side, and investment.
British factories in August experienced their weakest month since the start of the COVID-19 crisis due to shrinking orders caused by rising interest rates, according to a survey, resulting in a decline in purchasing activity, inventory holdings, and staffing levels. However, the slowdown in domestic and export demand has alleviated inflation pressures, potentially leading to a decrease in goods price inflation. With the economy showing signs of a slowdown, the Bank of England is expected to raise rates for the 15th consecutive time, despite concerns that it may lead to a recession.
Surging interest rates in the UK have led to a slump in factory output, the biggest annual drop in house prices since the global financial crisis, and signals of distress in different sectors of the economy, posing a dilemma for the Bank of England as it decides whether to raise interest rates further.
Large numbers of job cuts and reduced investment are hitting British manufacturing due to a slump in demand, according to the deputy editor of The Telegraph, Tim Wallace. The purchasing managers’ index fell to 43 in August, down from 45.3 in July, the lowest reading since August 2014 and the worst performance since May 2020, shortly after the first Covid-19 lockdown, also the worst since the financial crisis. Wallace cites Make UK economist Fhaheen Khan’s view that interest rates and inflation have lowered sales, sparking job cuts.
The UK economy has recovered more quickly from the pandemic than previously thought, outperforming Germany and other major Western industrial nations, although it still lags behind the G7 average, and there are concerns about the potential for a recession due to manufacturing struggles, sliding house prices, inflation, and strikes.
September historically has been a challenging month for stocks, but reduced concerns about a recession, signs of a potential shift in Fed policy, and positive sector trends point to the possibility of strategic investment opportunities this year.
The United Kingdom's private sector is experiencing a high rate of job cuts, potentially indicating a recession, as the labor market shows signs of weakening, according to S&P Global.
The risks of a near-term recession are increasing due to potential government shutdown and strikes in the auto industry, which are weighing on consumer confidence, according to J.P. Morgan Asset Management Global Market Strategist Jack Manley.
The UK economy shows signs of recovering from the economic shocks of the pandemic and Ukraine war, but deep-rooted challenges remain, particularly in terms of underinvestment in both the private and public sectors, low productivity, and declining public services.
British services companies experienced a smaller decline in September than expected, thanks to a drop in inflation and the Bank of England's decision to keep interest rates unchanged.
Despite high interest rates and sluggish GDP growth, analysts predict that the UK will avoid a recession due to a likely end to rate increases, falling inflation, and a return to real pay growth.
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